On 11 March 2020, Rishi Sunak delivered his first Budget as Chancellor. Marissa Thomas, PwC’s Head of Tax discusses what the Budget did and didn't deliver with Jon Richardson, PwC’s Head of Tax Policy, and Gavin Barwell, ex Chief of Staff to Teresa May and current special adviser to PwC.
Hello and welcome to PwC’s Talking Tax podcast. I’m Marissa Thomas, PwC’s Head of Tax.
After much anticipation and 500 days since the last Budget, the Chancellor, Rishi Sunak, delivered the Government’s Budget on Wednesday 11th March, just 27 days into his new role. PwC’s tax experts, and we have many, economists and industry specialists have been pouring over the Budget and today we are going to provide the analysis you need to know.
We can’t cover everything, so if you would like to see more analysis and have more of our insight from our experts please visit (pwc.co.uk/budget).
I am delighted to be joined today by Jon Richardson, Head of Tax Policy at PwC, welcome Jon.
And Gavin Barwell, former Chief of Staff to Theresa May, former Housing Minister and currently a strategic advisor to us at PwC. Welcome Gavin.
Thanks Marissa, Great to be with you.
A few comments from me before we start. This Budget was pitched as the first in a trilogy of fiscal statements we will see this year and clearly had to undergo a series of rewrites. It became an emergency budget in all but name. Large promises of spending. It was a Budget of two halves, the first being a package of emergency measures to address impacts of COVID-19 delivered with a rather somber tone, and the second being a more traditional Budget focused on high infrastructure and R&D investment to boost longer term growth.
Starting with the focus on the COVID-19 pandemic, the Chancellor said the outbreak would have a significant temporary impact on the UK economy, a view that’s widely shared. He then set-out a three-point plan that included a £12bn fiscal stimulus to deal with health and economic effects.
The Chancellor promised to give the NHS the people and resource they need to deal with the pandemic. To support people who are off sick and unable to go to work and also a series of measures for small businesses.
Look Gavin, can we start with looking at and hearing your insight on the political context and fiscal context behind this Budget, what does it mean?
This was obviously the first Budget for the new Government after the election but listening to it, it almost felt like a pre-election Budget to me. We kept hearing the Chancellor saying that this is a Government that delivers on its promises and gets things done. I think once we got through the emergency section on COVID-19, to me the most striking thing was this huge increase in public spending. And actually to hear a Conservative Chancellor of the Exchequer boasting that Government spending was going to grow twice as fast as the economy as a whole, I don’t think you’d have heard Philip Hammond saying that. That’s a big significant change and it’s about delivering on the Government’s ambitions to ‘level up’ our economy, so that all parts of the country see equal opportunities, that’s the real political context, I think, behind the second half of the Budget.
So quite a policy shift when it comes to public spending, particularly for a Conservative government, but less, I think of a policy shift or even an evolution around Tax, Jon? Any thoughts on that?
I think it was very much a Budget as expected, and anyone listening to our podcast predictions we talked a lot about them there. But there were no major policy announcements, no tax rabbits popping out of hats. Basically what the Chancellor did was deliver on the pledges that had been put in the manifesto, so the freezing of the Corporation Tax rate, increase in National Insurance, restrictions on Entrepreneurs Relief and some extra incentives around R&D and structural business allowances. So, that was very much as expected. I think one thing I would draw out, like all Budgets it’s not until you go through the reams and reams of paper that comes out associated with it, one of the bigger numbers in terms of tax raising was around anti-avoidance. Over a billion a year in a couple of year’s time, he did mention around more HMRC personnel to focus on that. But also there’s mention, literally one line deep in some of the papers, around a couple of consultations that are expected to come out around revising the tax promoter scheme and also a call for evidence around the tax advice industry on the back of the report that came out pre-Christmas. Overall though very much as we expected.
So aligned with what we expected, aligned with manifesto promises. What was missing?
I think the areas, the more controversial areas maybe in terms of policy shift, largely have played out in the media over the last few weeks, so it wasn’t a great surprise that we didn’t hear about changes to pensions or new taxes around wealth taxes or mansion taxes. Obviously given the triple-lock he couldn’t do much on rates. One area maybe that we were expecting to hear something about and actually there was nothing at all anywhere in the detail or the speech itself, was on inheritance tax. Especially given the OTS had reports on that about simplification and there was actually not a mention of it at all. I guess the other thing that didn’t get a mention, which was not a surprise, was around the Freeports. And we know this is the Prime Minister’s personal sort of favourite, so again as we said in our predictions podcast, we probably didn’t expect to hear anything but that doesn’t mean we won't get it as there’s a consultation out there at the moment, so that runs until April and I think we’ll hear more about that in due course.
Thanks Jon. Gavin, can we turn to productivity now, an ongoing issue for the UK and much of the developed world, and in fact we touched on this in our last podcast. Did we see any measures in the Budget to supercharge productivity?
There was a significant amount there. The starting point was the backdrop which was the OBR once again downgrading its assessment of productivity in our economy. This has been a problem really for a long time, since the financial crisis. I think there are probably three things the Government can do to try and address the problem and in two of those areas I think we saw really big announcements, one less so. So on the positive side first of all, in terms of investment, capital spending. Public net investment will in real terms be the highest at the end of this period it’s been since 1955. And there was quite a powerful figure the Chancellor used, he said if you take the average amount we’ve invested in the last 40 years in real terms, we’re now tripling that. So that gives you an idea of scale there. And on research and development, investment in the ideas of the future, we’re going to see the fastest year on year growth in that spending. So I think in those two areas, really radical policies that are part of this big fiscal injection into the economy. I think the area where there was less in this Budget was on skills. So he reiterated the Government’s pledge on school funding, there was some extra money for specialist maths schools for 16-19 year olds and there was some capital spending to improve the further education state. But those measures don’t feel up to the challenge that we face as a country, in terms of upskilling our workforce and it will be interesting to see whether we hear more about that in the spending review.
Certainly our CEO survey for the last two years has pointed to CEOs concerns about, do they have the right skills in their workforce, do they have the right agility in their workforce, it’s been their number one issue. And on the back of technology revolution, so a surprise that they’ve not started to tackle that. Jon, can I come now to net-zero, carbon taxes; we’re seeing growing interest understandably in environmental taxes and the part they will play in climate change and decarbonisation. What would you point out as the key measures in this space that we saw on the 11th?
Well anybody that listened to the Budget yesterday can’t have helped but notice the phrase ‘getting it done’, and I think it was mentioned actually 13 times. When it comes to climate change, I think we’re only right on the start of that journey in terms of getting it done. I think we’ve mentioned before in our predictions podcast that what we expect to hear in this area is a constant drumbeat of different policy announcements and this was the start of it. We’ve got COP 26 coming up at the end of the year, so I think that we expect to hear more. We’ve got the treasury doing their analysis of the costings of that. So we did get a bundle of different initiatives, covering various areas from taxes and climate levies through to various investments. But at the same time it was a bit contradictory because we had a bunch of areas and initiatives that are helping climate change but at the same time had fuel duty frozen and we had the biggest investment in road building that we’ve ever seen. So in some ways a bit of a contradictory Budget on the green tax side.
Thank you. Before we close, Gavin, just one thought for you. The business relief measures aimed at helping with our potential COVID-19 issue, very much aimed at small businesses as I said but large businesses will also suffer and feel pain as a result of the economic fallout. What mechanisms do the Government have ahead of the Autumn Budget to extend or provide relief to larger businesses and larger employers?
I think it’s a fair critique, politically it’s much easier to provide help to small and medium businesses than large ones. But it will be interesting to see whether the Government makes use of some of the regulatory tools that it’s got. Whether actually some of the key regulators will ease off on some of the pressures on certain issues over this, what the Chancellor described as a ‘temporary period’, while we’re dealing with this issue. I liked the rhetoric he used. He talked about trying to build a bridge that would help businesses get through what he said was going to be a significant impact but a temporary one. And I think it’s really important going forward that he makes sure that that bridge is there for large businesses on whom a significant number of jobs depend as well as for small and medium ones.
Thank you. Look thanks to both of you, Jon and Gavin, for your contribution to this Talking Tax episode. As I said this is a Budget of two halves, a package of emergency measures to mitigate the temporary impact of COVID-19, and a more traditional Budget focused on longer term growth. It resulted in one of the largest spending packages we have seen for 30 years. I have no doubt that over the coming months there will be additional measures taken and announcements made that we will have insight to provide on so please do stay tuned and look out for further episodes in the future.
If you would like more details about what we discussed here and other topics related to the Budget, please visit www.pwc.co.uk/budget. Thank you.